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17 June 2008

Bank of Thailand: Average inflation won’t exceed10%


The average inflation in Thailand in 2008 is now projected to be lower than 10 percent, Bank of Thailand (BoT) governor Tarisa Watanagase said Monday.

Tarisa's remarks were made just three days after she had made cautionary remarks that Thailand's inflation this year could possibly hit  two digits due to accelerated public spending in response to concerns about the sharp increase of inflation.

She said that average monthly inflation during the first five months this year stood at 5.8 percent and if the average inflation for 2008 is to hit 10 percent, it means that inflation for the remainder of seven months must be as high as 15 percent which would be too severe.

This year's inflation will not reach double-digit levels, she affirmed, but emphasised that it is the responsibility of the BoT's Monetary Policy Committee (MPC) to closely monitor inflation in the country so that is did not to climb too high and jeopardise the national economy.


In principle, Tarisa said, every central bank in the world would raise the interest rate if inflation in the particular country increases too high.

It would be done in a bid to curtail both consumer spending and inflationary pressure, she said, adding that the MPC has maintained its benchmark one-day repurchase rate at 3.25 percent which is the lowest in the region, while the real interest rate contracted.

If the MPC's repurchase rate rises it will slightly hurt public spending, economic growth and production costs of entrepreneurs, she said.

The MPC will not meet before its scheduled meeting on July 16 because it considers that rising inflation is still "not too urgent" an issue, and the market and the public could over-react if a special meeting is held, she said.

Touching on the current weak baht against the US dollar, Tarisa said the Thai currency's depreciation is in line with regional currencies as foreign investors unloaded stocks in Thailand and elsewhere in the region and repatriated money to the US after gaining confidence following signals sent by the US Federal Reserve that it would closely monitor inflation in the country.

Foreign investors now believe that the Fed will not lower its rate. On Monday, the baht moved at around 33.28 baht against the dollar on the onshore market.




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